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CvT: Prospects of a Coordinated US-EU China Strategy

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The EU’s foreign policy chief Josep Borrell recently announced via a blog post that he foresaw “an interest by the incoming Biden administration for close cooperation on China.” Chinese state media immediately seized on this statement by simultaneously accusing both sides of “ganging up” on China while maintaining that such efforts would be futile. Nonetheless, Brussels has left little to the imagination for their expectations of heightened transatlantic cooperation under a Biden administration. For his part, Biden has promised to, unlike his predecessor, produce a coherent strategy for countering China that will include more robust engagement with traditional allies.

Implications of a disjointed White House

In a memorable moment early this year that sent shivers down the spines of Wall Street, top White House trade advisor Peter Navarro declared that the trade talks with China were “over.” Although he backtracked on his statement a week later, that was not the first time that Navarro had advocated economic decoupling, or introducing barriers to cross-border trade and investment. Meanwhile, Trade Representative, Robert Lighthizer, bluntly testified before the House Ways and Means Committee that he did not believe that decoupling was a “reasonable policy option at this point.”

The lack of a coherent strategy confused America’s European allies, who could not decipher whether the Trump administration’s end goal was to reduce economic engagement with China through decoupling, or increase engagement, albeit under renegotiated terms of trade. The European Chamber of Commerce put it best when it claimed in its annual report on EU-China economic ties that:

“The only thing Americans seem to agree on these days is that the US-China relationship must enter a new era, and abandon the engagement-at-all-costs approach that defined previous administrations in favor of something considerably more hawkish.”

Compounding disillusionment among Europeans with the Americans’ incoherent strategy is a general exasperation with the previous administration’s repeated warnings that economic relations with China are inherently predatory. As Thomas Christensen, a senior fellow at the Brookings Institution, explains, this strategy has largely backfired since “countries do not appreciate being called prey.” In Biden, the Europeans hope to find a President who will listen to their interests and refrain from the previous administration’s patronizing warnings. 

What do the Europeans want?

Over the past several years, the Europeans have begun to recalibrate their approach to China. Shortly after the US labeled China a strategic competitor in 2017, the EU labeled China “an economic competitor in pursuit of technological leadership and a systemic rival promoting alternative models of governance.” The bloc’s major powers, in particular France and Germany, have since announced their intentions to protect their markets from unfair Chinese trade and investment practices.

Concurrent to these efforts, the EU has continued to pursue increased economic engagement with China. Tellingly, Chancellor Angela Merkel has been probing China for a possible trade deal by the end of the year. Unlike past negotiations, however, the EU is demanding that China undertake specific market reforms that level the playing field for European businesses as necessary conditions for a trade deal. At a high level, the EU’s demands largely mirror the concerns of the business community. The influential European Chamber of Commerce claims that China must act to “close the gap between rhetoric and reality” by opening up industries to competition from European firms and allowing market forces to shape the behavior of China’s infamous SOEs. 

Recent negotiations serve as a microcosm of what Europeans are looking for when they speak of “rebalancing” their relationship with China and treating the nation as a “systemic rival.” Ultimately, unlike Navarro, they do not see economic engagement as inherently destabilizing to the current balance of power. As long the rules of the road provide balanced, mutual benefits to both parties and those rules are observed, the Europeans are content to continue expanding economic ties with China.

The domestic pressure to pursue this approach is immense. As Italy’s ascension to OBOR demonstrates, after years of austerity imposed by Germany, Southern European countries are hungry for foreign investment that comes with few strings attached. Further north, Daimler, the German auto conglomerate that owns Mercedes, has bluntly stated that they have no interest in investing in the moribund domestic market, instead preferring to focus its energy on expanding production in the world’s fastest growing market – China.

Biden administration: a return to precedent?

On the campaign trail, Biden promised a return to multilateral diplomacy from day one. Biden’s advisers have said that the President-elect will seek to end “artificial trade wars” with Europe and consult with allies before deciding on the future of U.S. tariffs on Chinese goods. Furthermore, Biden believes that traditional alliances give the US “collective bargaining power” that amplifies pressure campaigns. While the Trump administration has also sought a transatlantic partnership to address China, its propensity to seek compliance rather than cooperation turned off European leaders. Biden’s more moderate views on trade, as well as his reputation as a mediator and expansive institutional relationships, have raised hopes in Brussels of both sides finally negotiating a common approach. 

If Biden believes that China’s malign economic influence can only be effectively countered with the help of America’s traditional allies, America’s endgame will start to look a lot more like Brussels and a lot less like Navarro’s objective of economic decoupling. Europe’s staunch position on the matter and Biden’s own personal leanings make this a rather likely scenario. Come January, talks of decoupling will be looking at deep hibernation.

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